Teladoc Health (TDOC 7.59%) Q2 2022 Earnings Call July 27, 2022, 4:30 p.m. ET
Contents:
Prepared Remarks:
Hello and welcome to today’s Teladoc Health Q2 earnings call. My name is Elliot and I will be coordinating your call today. To see also : Arts, Beats & Eats reveals a music group that includes 311, Flo Rida. [Operator Instructions] I would now like to hand over to Patrick Feeley, Vice President and Investor Relations. The floor is yours.
Patrick Feeley — Vice President and Investor Relations
Thank you and have a good day. Today after the market closed, we issued a press release announcing our financial results for the second quarter of 2022. This press release and accompanying slide presentation are available in the Investor Relations section of teladochealth.com. On this call to discuss the results are Jason Gorevic, Chief Executive Officer; and Mala Murthy, Chief Financial Officer.
During this call, we will also present our forecast for the third quarter and full year 2022, and our prepared remarks will be followed by a question and answer session. Please note that we will discuss certain non-GAAP financial measures that we believe are relevant in evaluating Teladoc Health’s performance. Details of the relationship between these non-GAAP measures and the most comparable GAAP measures and their reconciliations can be found in the press release posted on our website. Please also note that certain statements made during this announcement will be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995.
Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results for Teladoc Health to differ materially from those expressed or implied in this prospectus. For additional information, please see our cautionary statement in our press release and our filings with the SEC, all of which are available on our website. I would now like to turn the call over to Jason.
Jason Gorevic — Chief Executive Officer
Thank you, Patrick. Good afternoon and thank you for joining us. After today’s close, Teladoc Health reported strong second quarter results, with both revenue and adjusted EBITDA above the midpoint of our guidance range. After the second half of the year, we decided to extend our market leadership by providing innovative solutions that change the way consumers interact with the healthcare system.
We do this with a relentless focus on clinical quality that enables us to deliver value to as many people as possible through an integrated, whole-person care offering supported by technology and data. This is made possible by our broad range of capabilities and a model that allows us to integrate with all parts of the healthcare system without the misaligned incentives that characterize other parts of the delivery system. Our outperformance in the second quarter versus guidance was primarily driven by Chronic Care revenue, where enrollments exceeded our expectations. As we discussed earlier in the year, we expected chronic care enrollment growth to be weighted towards the latter half of 2022.
However, our team worked tirelessly in the second quarter to onboard new populations ahead of schedule at multiple clients, accelerate enrollment in new programs, and drive more than 90,000 net new enrollments in the second quarter alone. This enrollment growth was driven by new and existing customers. And importantly, we continue to encourage enrollment in multiple programs. About 30% of our Chronic Care members now use multiple Chronic Care programs. This is not only important in terms of member penetration, but also serves to improve retention, as our members report greater satisfaction with access to more solutions.
For example, we have found that member retention after one year is 10% higher for members who are enrolled in our diabetes program and at least one other program, compared to those enrolled only in the diabetes program. We also find that clinical outcomes improve for members involved in multiple programs. For example, A1C reduction improves when our diabetes management members switch from a stand-alone solution to adding two, three, and four programs. All of this together helps us deliver greater value to our customers and members while increasing revenue per member.
While we were pleased to exceed our member enrollment goals in the quarter, we continue to see our chronic disease portfolio develop more slowly than we expected at the beginning of the year, as we discussed in the first quarter. It’s still early in the selling season, but deals continue to move at a slower pace. We believe it is at least in part due to competitive noise as the market moves from stand-alone point solutions to integrated virtual whole-person care. Based on what we are currently seeing in the market, we also believe that the increased economic uncertainty in the last few months is increasingly influencing the decision-making process in the employers’ market.
Increasingly, we are seeing our Chronic Care customers recognize the value of combining these products with primary care and embrace our comprehensive approach. And so Primary360 continues to be a significant bright spot in terms of commercial momentum. While the market remains in the early part of the virtual primary care adoption curve, we continue to see signs of strong demand. Our customers find that Primary360 is expanding access to care, with two-thirds of enrolled members not having seen a doctor in the two years before Primary360, and nearly a third saying they would not have seen a doctor at all if not for access to Primary360.
Patients report high satisfaction, and our members tell us it’s a result of our providers actually taking the time to listen because our doctors can spend time providing care instead of checking boxes on a chart and dealing with administrative costs. Because of the positive experience our customers have with Primary360, we now look forward to expanding our relationship with one of our larger health plan partners to bring Primary360 to a larger population. This is a strong endorsement of the value Primary360 provides. Starting next year, we are expanding our support for Virtual First Health Plans for this customer to several additional states.
In the second quarter, we also signed a new agreement to expand our relationship with one of our major health plan partners in the Midwest. This expansion builds on our existing Chronic Care partnership and will allow plan customers to take advantage of a comprehensive suite of integrated Primary Care and Chronic Care solutions. The agreement represents another example of our ability not only to horizontally fit and expand into new customer populations, but also to expand vertically with new products. In another example of our whole-person strategy paying dividends, we recently announced an expanded relationship with Priority Health, an integrated health plan that will bring together our Primary360 product along with our Chronic Care solution suite as part of one holistic end-to-end integrated solution.
I mentioned these three deals not only because they are significant new deals signed in the last few months. But because I think they illustrate three different examples of how we drive growth: one, landing with a customer and expanding to eventually serve a new population within that customer; second, cross-selling new innovative products to existing customers; and third, it brings a new integrated suite of services for the whole person available to the customer, combined into one offering; finally, we continue to add new capabilities to our Primary360 offering that increase value for our members and customers. In the second quarter, we added several new improvements to the last mile. Home lab testing is now available at no additional cost to Primary360 members nationwide. Free same-day delivery of prescription drugs will be introduced in the second half of this year, increasing both convenience and compliance.
Although it is still early days in terms of the ultimate opportunity in terms of adoption and penetration of virtual or primary care, we still see many reasons to be excited about the launch of our integrated Primary360 offering. We address our business directly with consumers. we’ve seen BetterHelp continue to deliver strong revenue growth of over 40% year-over-year, as well as strong sequential growth. At the same time, BetterHelp’s performance came in near the lower end of our expectations as we continued to experience the decline in return on marketing spend that we discussed in April.
We continue to see smaller private competitors pursuing what we believe to be low or no return customer acquisition strategies to gain market share. Although we do not see this as sustainable, it is difficult to predict how long this dynamic will continue. We also believe that the weaker economic environment and weaker consumer sentiment are likely to affect BetterHelp’s performance. Over the past few months, we’ve seen a modest gradual decline in return on ad spend, which we believe may be a sign of consumer belt-tightening.
With inflation rising, consumer confidence has now fallen to its lowest level in decades. Given our significant leadership position in the DTC market and our significant scale advantage, we remain confident that we can continue to outperform the industry and drive strong financial performance as we address this heightened level of near-term economic uncertainty. We consider these trends in Chronic Care and BetterHelp as well as the impact of a stronger dollar on our international revenues. We believe it is more likely that our overall financial performance in the second half of the year will be towards the lower end of our consolidated revenue and adjusted EBITDA.
However, there are scenarios in which our results could be above or below this due to increased uncertainty in the broader economic backdrop, particularly as it relates to consumer spending trends and its impact on our DTC business. We will continue to monitor these short-term evolving dynamics and provide updates as needed. With that, I will turn the call over to Mali to review the second quarter and our guidance going forward.
Mala Murthy — Chief Financial Officer
Thank you, Jason, and have a good day, everyone. In the second quarter, total revenue increased 18% year-over-year to $592 million. Revenue for BetterHelp, our direct-to-consumer mental health brand, grew more than 40% year-over-year, or 7% sequentially in the first quarter, representing strong growth, albeit at the lower end of our expectations, as we continue to see a lower return on marketing expenditures compared to the previous year. We closed the quarter with U.S.
paid membership of 56.6 million members, an increase of 2.4 million members in the first quarter, driven by the addition of a new virtual care customer. Pay-only access individuals totaled $24 million at the end of the second quarter. The total number of our unique members enrolled in one or more of our chronic care programs was 798,000 in the second quarter, an increase of 67,000 from the first quarter. 30% of our Chronic Care members are now enrolled in more than one program, compared to 27% sequentially from the first quarter.
This helped drive 92,000 new Chronic Care program enrollments in the quarter, bringing total program enrollment to more than 1 million programs, up 167,000 or 20% year-over-year. As Jason mentioned, the strong number of new enrollments in chronic care programs in the second quarter exceeded our expectations. To date, we’ve added nearly 70,000 new Chronic Care members and 127,000 new program enrollments. At the beginning of the year, we expect enrollment to be more half-weighted due to the cadence of expected population starts.
However, due to our team’s efforts to onboard new populations faster than expected in the second quarter, we were able to accommodate more of these enrollments in the second quarter than expected. As a result of the significant performance in the second quarter that actually pulled forward the new enrollments from the second half as well as the back end of the development that Jason mentioned. We no longer expect enrollment to increase towards the second half of the year. Average US
revenue per member per month was $2.60 in the second quarter, up 13% from $2.31 in the year-ago quarter and up 3% from the first quarter. Sequential growth in revenue per member per month was primarily due to growth in BetterHelp and Chronic Care program revenue. Adjusted EBITDA was $46.7 million in the second quarter, compared to $66.8 million in the prior-year quarter, and is at the high end of our guidance range. As we mentioned earlier this year, we expect more pronounced seasonality in margins this year as we return to a more normalized cadence of ad spend.
In the fourth quarter, we hardly expect lower ad spend and a higher margin in direct-to-consumer business, as we reduced media spend during the more expensive holiday season. As we talked about last quarter, it’s important to note that in 2020 and 2021, this seasonality was less pronounced due to the weaker advertising market during the onset of the pandemic. Net loss per share was $19.22 in the second quarter, compared to $0.86 per share in the second quarter last year. Second quarter net loss per share includes a non-cash goodwill impairment charge of $18.78 per share, or $3 billion.
The goodwill impairment was triggered by a decline in Teladoc Health’s share price with the valuation and magnitude of the impairment primarily due to an increased discount rate and lower market multiples for the respective group of comparable high-growth digital health companies. Net loss per share also included stock-based compensation expense of $0.32 per share and amortization of acquired intangible assets of $0.30 per share. In the second quarter, we generated free cash flow of $47.6 million and ended the quarter with $884 million in cash and short-term investments on the balance sheet. Now on to the instructions ahead.
While maintaining our full revenue adjusted EBITDA for 2022 given in April. Current trends in the direct-to-consumer and chronic care supply markets, as well as headwinds from the year-to-date strengthening of the dollar, which at current exchange rates represents a nearly $20 million charge to our full-year outlook. We think it is more likely that our results will fall towards the lower end of the range. As Jason noted, there are scenarios where our results could be above or below this due to increased uncertainty in the broader environment, and we will continue to provide relevant updates.
We expect total U.S. paid membership of 55 to 56.5 million members, an increase of 0.5 million to 1 million members from our previous guidance. and represents an annual growth of 6% to 8%. We expect total visits in 2022 to be between 18.8 million and 19.3 million visits, which represents growth of 22% to 25% compared to the previous year.
For the third quarter of 2022, we expect revenues of $600 million to $620 million, representing growth of 15% to 19% over the third quarter of last year. We expect total U.S. paid membership to be 55.5 million to 56.5 million in the third quarter. Total visits in the third quarter are expected to be between 4.8 million and 5 million visits.
We expect adjusted EBITDA in the third quarter to be in the range of $35 million to $45 million. Lower expected sequential adjusted EBITDA in the third quarter was primarily due to lower direct-to-consumer mental health contributions and increased engagement spending to support the recently launched Chronic Care population. With that, I’ll turn the call back over to Jason for closing remarks.
Jason Gorevic — Chief Executive Officer
Thank you, Mala. This week we were delighted to welcome Mike Waters to the team as our new COO. Many of you know Mike from his work building and leading the ambulatory care business at Providence Health System, a leader in digitally enabled hybrid care. Mike brings a proven track record of scaling complex care operations to serve more people more effectively.
And I couldn’t be happier to have him on the team. Mike joins Vidya Raman-Tangelli, our new Chief Medical Officer, who joined us in April from AWS, as we continue to see market-leading talent choose Teladoc Health as a place to transform the healthcare experience, and I’m thrilled, where will this team take us. This will open the call for questions. Operator?
Questions & Answers:
Thank you. [Operator Instructions] Our first question today comes from Ryan Daniels of William Blair. See the article : IWCC Arts Center accelerates recovery from the COVID-19 closure. Your line is open. Please continue.
Ryan Daniels – William Blair – Analyst
Yeah guys, thanks for taking the question. Mala, I guess you expected this given the third quarter guidance and the full year guidance, but it looks like very significant EBITDA growth, kind of more than doubling on an absolute dollar basis from Q3 to Q4. And I appreciate some of your comments about the withdrawal of D2C consumption. But what else will drive this substantial increase in sequential EBITDA from the third quarter to the fourth quarter? thank you
Mala Murthy — Chief Financial Officer
Yes, Ryan. So you’re absolutely right. We’ve projected a material increase in the guidance — and if you think about what’s driving the increase, it’s basically the timing of our advertising and marketing spend. At BetterHelp, we talked about this in our prepared remarks.
And we — if you think about BetterHelp’s business and the dynamics, typical seasonal spending is to see growth in the early part of the year and pull back in the — in the fourth quarter because of the expensive holiday season. This is not a new phenomenon. But it was significantly less pronounced during the period of COVID, which muted the seasonality in advertising spending in this business, it will be more pronounced this year. So, we should expect A&M’s spending to decline significantly in the fourth quarter, both on a dollar basis and as a percentage of revenue.
So I would say that is primarily the reason for the significant increase in our margins. And as I said, one thing just to reinforce that this factor is not new. Full seasonally adjusted EBITDA is not new to our business. If you look back before 2021, you would find that it was difficult to see a significant increase in EBITDA from the first half to the second half of the year.
In fact, if you look at our margin growth from 1Q to 4Q, it was around 700 to 800 bps. And at that point, BetterHelp was a much smaller part of our business, right? So as we have given you more color and transparency in the size of the company and the growth of the company, it is more important. Therefore, the dynamics of ad spend throughout the year will have a much more noticeable impact on our overall margins.
Our next question comes from Lisa Gill of J.P. Morgan. Your line is open.
Lisa Gill – J.P. Morgan – Analyst
hello Thank you very much and have a good day. Jason, I want to go back to your comments about direct-to-consumer competition. We saw what happened to Cerebral.
And I’m just curious if you’ve gotten some market share from what’s happened with them, and I know you’ve talked about others who are trying to get some lives at this point. But one, if you could talk about the competitive environment there and what you’re seeing? And secondly, I just wanted to make sure I understood that. So you’re saying that this big growth between Q3 and Q4 is really mainly ad spend and you can still keep the direct-to-consumer revenue on the BetterHelp side. I just want to make sure I remember that historical dynamic, but it’s obviously a much larger number than what it was.
Jason Gorevic — Chief Executive Officer
yes Lisa, I can take — maybe take both. In terms of direct-to-consumer advertising costs, we haven’t seen a significant change in paid search costs over the past three months. And that’s what we included in our revised guidance that we gave in April, and we talked at length about the increased costs in that channel.
We are seeing modestly higher customer acquisition costs in a few channels. And it’s not just any channel you should call. We’re not really seeing significantly higher prices in those channels, but the revenue we’re seeing in ad spend is just trending toward the lower end of what we expected in April. So we’re seeing continued consistent spending but lower revenue yields, and we think a significant portion of that is due to greater price sensitivity among consumers due to the general economic backdrop and the fact that they’re seeing inflation for the rest of their lives.
So we’ve talked about 35% to 40% revenue growth that will be factored into our outlook for BetterHelp this year. We still expect that to be the case. But based on current trends, we expect to be towards the lower end, or indeed the lower half of that range. In terms of ad spend for BetterHelp and whether we can retain revenue, we will not completely eliminate advertising.
So you’ll see that in the fourth quarter, ad spend won’t drop to zero, but it’s a significant decrease due to higher costs per ad impression. So we want to make sure that we’re making good economic decisions, so we’re going to sort of move to the higher end of the marginal yield curve.
Our next question comes from Sandy Draper at the Guggenheim. Your line is open. Please continue.
Sandy Draper — Guggenheim Securities — Analyst
Thank you very much. I will try to frame this in a way that makes sense. When I look, Mala, at the performance of paid members in the US and identify one that is advancing or kind of pulling ahead, and maybe a little comment on that would be helpful, it seems to me that the direction is that this could be lagging behind.
But you also had chronic care members that grew faster. Both have a higher PMPM, seems to be dragging on, it repeats, that would flow for better revenue. So I guess the question is basically, is that accurate? And so — but offset by slower increases in additional new chronic care contracts and BetterHelp? I’m just trying to understand the performance of those two metrics, which I would think would have a positive impact on the second half of the year. This would be great.
And if you could answer that member question quickly, it would die. thank you
Mala Murthy — Chief Financial Officer
yes Sandy, your point is correct. As we said, we’re really pleased with the hard work that our teams have done, people are working to get the populations on board ahead of schedule in the second quarter, which basically led to really high enrollment numbers. We talked about 67,000 net new Chronic Care members in the second quarter alone and 92,000 additional program enrollments sequentially in the first quarter.
So this effort, as we said, is an acceleration of some of the enrollments that were previously expected to happen primarily in the third quarter. It is therefore important to recognize that these new members should contribute revenue by the end of the year. But remember, they were obviously already in our forecast, right? So it’s a small increase in revenue in the last half of the year due to the pullback. However, we also said that given the speed of closing the deal, we’ve essentially removed our assumptions about in-year contribution or back-half revenue contribution at this point from additional chronic care launches.
So that’s what drives our expectations in the last half of the year for Chronic Care. So we’re basically — in April, we reduced your revenue, which we talked about quite significantly, but we also continue to see some competitive dynamics in the chronic care space. And we — based on the forecast from a guidance perspective, we thought it prudent at this point to remove the remaining — most of your revenue assumptions for Chronic Care.
Our next question comes from Richard Close of Canaccord Genuity. Your line is open. Please continue.
Richard Close – Canaccord Genuity – Analyst
Yes, thanks for the question. On the employer side of business and economic uncertainty, I was just wondering if employers are still poking around but unwilling to pull the trigger because of the uncertainty? Or has the pipeline basically dried up due to new potential deals? Just any thoughts in and around that would be helpful.
Jason Gorevic — Chief Executive Officer
Yes, Richard, thanks for the question. I appreciate this. Let me give you a little bit of a pipeline, and then I’ll try to describe how customers act. The good news for us is that our current roadmap and the late-stage project that you’ve heard me talk about over the last couple of quarters is up about 20% year-over-year from where it was. last year at this time.
We also have twice as many multi-million dollar deals in the pipeline as we entered the third quarter of last year. I would say the pipeline is very healthy and has improved since we were at this time last year. The challenge we are witnessing is that in these times of economic uncertainty, all purchases receive a significantly higher level of scrutiny. I think we are also facing a situation where many HR leaders in organizations are facing a very challenging time.
As you’ve heard and read all over the news about companies downsizing, they need to control costs. And so I think there’s a level of disruption at the same time. While in the past we’ve seen more mid-year launches or for our chronic care solutions, we’re really not seeing a lot of them this year, so Mala commented on our revenue outlook for the year, which means we’re selling this year and launching this year. We have lowered our outlook for the last half of this year.
I still feel good about where the pipeline is and about our outlook for the selling season. As you know, we are entering a kind of critical three-month period of the sales season. And so we’ll know a lot more when we get back to you with our Q3 results. But the pipeline is certainly healthy and we’re seeing a lot of interest.
We only find that purchasing decisions in these organizations are significantly delayed.
Our next question comes from Stephanie Davis of SVB Securities. Your line is open.
Stephanie Davis — SVB Leerink — Analyst
Hey guys. Thank you for accepting my question. I was hoping to touch on some of the macro environment, just given some of the macro softness we’re seeing in retail and packaging earnings. Can you tell us more about what is written in your guidance for 2022 and your long-term direction? And continuing on that, just given how different the macro is today, even compared to your analyst day, are we still on track for the 25% to 30% growth target?
Jason Gorevic — Chief Executive Officer
So, Stephanie, I want to be clear, we’re not giving a multi-year outlook at this point. And I think we mentioned that last quarter on our call. Therefore, we will not comment on the multi-year outlook. With respect to the current year and our ’22 outlook, we have essentially assumed the status quo through the end of the year.
If there is a significant deterioration in the market in terms of consumer sentiment and/or the macroeconomic environment alone, there could be negative consequences, particularly for BetterHelp’s business. If the environment improves, then we see positive opportunities in the last half of the year. So that’s specifically the reason for our comment about saying that we expect to be toward the lower end of our guidance and that there are pros and cons around that depending on how the economic scenarios play out.
Mala Murthy — Chief Financial Officer
yes And Stephanie to add to that. When you think of macros that are — that could affect our business, three come to mind, right? One is, as Jason mentioned, consumer sentiment and how that positively or negatively impacts our direct-to-consumer business over the months. The second is, as we just talked about in our prepared remarks, the direction of the euro and the potential headwinds we face in our international revenues.
As far as we know, we’ve quantified it — so far, and we’ll see how they progress throughout the year. Obviously, we also talked about the employer market and the impact that — just the thought of a possible moving economic slowdown is having on the sentiment in the employer market. And the last is wage inflation. And now we see that the impact on our business is relatively modest.
It’s not something we want — it’s not important enough to comment on. But again, these are — as we refine our outlook for this year and then as we go into next year, — as far as they’re important enough, we’ll provide transparency to you all.
Our next question is Sean Dodge from RBC. Your line is open.
Sean Dodge — RBC Capital Markets — Analyst
thank you good evening On BetterHelp, Jason, you mentioned the impact the economy has on subscribers. I know you’ve talked in the past about experimenting with different pricing and usage models to give you even more options to stay with the service.
Did you roll them out? And maybe give us an idea of what other tools you have available to help manage BetterHelp during what could be quite a difficult period for consumers.
Jason Gorevic — Chief Executive Officer
Yes, Sean, we are always experimenting with new pricing models. And when we do, we do so in a multi-layered test and control environment. Sometimes we do this in different geographical areas. Sometimes we do this through different channels.
And we are always innovating on different product features and capabilities. So what we’ve seen is very interesting because we’re not really seeing a change in our retention rates, we’re not really seeing a change in LTV for the consumers that we have on the platform. We see only a slight deterioration in return on advertising spend, which would indicate a slightly higher price sensitivity for the first purchase decision. Once they are on the platform, we haven’t actually seen any behavioral changes yet.
So we think this is directly related to consumer sentiment and the current economic environment. It’s hard to be specific about this. But we know exactly what the yield change is. It’s modest, but it can clearly make an impact on a large scale.
We are constantly improving the channels we use. And I think that’s one of the key strengths that we have. In our scope, we have the possibility of continuous optimization. And so we will continue to do so during this period.
And I’d just like to remind you that we saw 40% year-over-year growth in the last quarter. So – and sequential growth from the first to the second quarter. So we are seeing the benefits of these efforts. It’s just — I would say we have a slightly more cautious view.
Mala Murthy — Chief Financial Officer
And we continue to balance the growth, which is, as Jason was talking about, 40% growth, and the margins in that business. So — and we’ll continue to kind of balance and optimize between those.
Our next question comes from Charles Rhyee of Cowen. Your line is open. Please continue.
Charles Rhyee — Cowen and Company — Analyst
Yes, thank you for accepting my question. I wanted to follow up on Sandy’s question, Mala. I guess — your comments about the — on the revenue side, as we had higher than expected enrollment in the second quarter. Just wanted to get a feel for the Adjusted EBITDA side.
Given that it’s all recurring and we’ve had more sign-ups than we expected, I think we’ll see more of that benefit in the back half of the year, especially as we look at third quarter guidance. I’m wondering what else — I understand you’re talking about a little bit of help, but maybe help us understand, are we not going to see some sequential benefits from enrollment going forward? And secondly, when you talk about advertising spend, I think in the quarter, on a non-GAAP basis, it was $161 million for advertising and marketing. Can you give us a rough or any kind of breakdown between how much of that goes direct to consumer versus the rest of the business? thank you
Mala Murthy — Chief Financial Officer
yes So at this point I don’t want to go into the details of further breaking down our advertising spend into our direct-to-consumer business and the rest of our business. I would say if you look at the various data and information that we’ve provided about our BetterHelp business, our revenue per package, etc., from Investor Day to now. In fact, we can get back to the total profits and losses of our BetterHelp company fairly easily.
In fact, we’ve given you enough information to do just that. So I don’t want to go into more detail about it. But for your first question, Charles, it’s a good question. And what we’re basically seeing is — we talked about the fact that we’re seeing some kind of intra-year dynamics in our warehouse business.
The other thing that we’ve consistently said throughout is that this is an important year for us in terms of our R&D investments. We talked about it at the Investor Day. We’ve talked about investing in our integrated platform in new capabilities in new products like my Primary360 fleet power, Chronic Care Complete, further integration of our data that supports bringing together all of our product suites. This is still going on.
So the step forward that you – we made a very deliberate decision to invest in research and development this year. This is a higher level of investment compared to last year. And for now, we’re sticking with it because we expect it to result in sustained revenue growth over the long term. That these R&D investments essentially support a whole-person care strategy.
And so we expect to continue to do so. Having said that, I will say that we are always responsibly looking for ways to optimize our cost structure. As we head into 2023, we will be taking a closer look at our cost structure. We will be very thoughtful about how we balance our need to maintain our near-term profitability while continuing to make all of these necessary investments. to drive our long-term growth.
It’s something we’ve always done and will continue to do.
Our next question is Daniel Grosslight from Citi. Your line is open.
Daniel Grosslight — Citi — Analyst
hello Thank you for accepting my question. There appears to be more intense health scrutiny now regarding the use of health data, even when used under HIPAA. I think a couple of senators sent BetterHelp and one of your competitors a letter about this a few weeks ago.
I’m wondering if you can explain to us how – how BetterHelp uses member data for marketing and targeting. And if this increased control over health data and data usage will change the way we market in the DTC channel?
Jason Gorevic — Chief Executive Officer
Yes of course. We have received your letter and are providing all important information about our services. Dan, we conduct all of our activities in compliance with state, federal and international privacy laws. We also take consumer transparency very seriously and comply with all consumer protection laws.
We adhere to HIPAA compliance standards and strongly believe in the privacy of our members and continue to work with all relevant parties to ensure their compliance. So I won’t go into more detail about a specific ad channel. But I think it’s clear from our experience and history that we take this very seriously.
Our next question is from Deutsche Bank’s George Hill. Your line is open. Please continue.
George Hill — Deutsche Bank — Analyst
Yeah good evening guys and thanks for taking my question. I guess Mala, I have a sort of numbers question that digs into the implied Q4 guidance. And I guess my first question is just, will there be anything in the reconciliation adjustments that might stand out from the previous quarters? Because I’m trying to kind of bridge the gap between the running EBITDA rate in the first three quarters and what we expect in the fourth quarter, and if the consequence is that we have to limit marketing spend, if we’re talking about cutting marketing spending in half, it kind of goes back to Lisa’s thoughts on how we keep the revenue on this?
We’ve seen that we’ve lost touch with George Hill.
Mala Murthy — Chief Financial Officer
Jason Gorevic — Chief Executive Officer
George, you broke up at the end of it.
Moving on to Jessica Tassan from Piper Sandler. Your line is open. Please continue.
Jessica Tassan – Piper Sandler – Analyst
Thank you for answering the question. Therefore, the revised commentary on the seasonality of Livong membership only was helpful. Can you just confirm if you still expect Chronic Care revenue to grow in the low to mid-teens in 2022. And maybe if you could just comment on the average chronic PMPM, given that 30% of members are now multi-disease, how do the prices compare to the $75 per member per month we’ve seen with standalone Livong? thank you
Mala Murthy — Chief Financial Officer
Yes, Jessica. So to your first question, yes, we still expect to be in the low to mid-teens, which we talked about on the last call, just based on what we said in terms of the dynamics that we’re seeing on Chronic Care and in terms of to the fact that we talked about in the last half, there is pressure on revenues in the year because of the additional deals that we expected. I would expect Chronic Care’s revenue growth to be towards the lower end of the low to mid-teens. And then the other question is, from a pricing perspective, we really don’t see any change in pricing.
It still remains robust, healthy. So I don’t see a big change and pressure on — from a pricing standpoint.
Our next question comes from A.J. Rice from Credit Suisse. Your line is open.
A.J. Rice — Credit Suisse — Analyst
thank you Hello everyone. Two quick things to your comments and in the press release. Your usage performance continues to increase by 24% this quarter.
That’s a step up from last quarter and up from 19% a year ago with less COVID and a lot of mixed comments in the market about usage. What do you see continuing to fuel this upswing? Is this Primary360? Or is it some other dynamic? And then maybe just the comments that Jason made about the new wins that you’re having with Virtual First health plans, a relatively new product offering. Can you comment on how these are structured at a high level? Are you an exclusive seller for these health plans, or are you a preferred seller as a referral to the first visit only? Are there more deals coming your way? How are these structured?
Jason Gorevic — Chief Executive Officer
of course. I can comment on consumption. Growth in the first half of the year was a combination of BetterHelp and our general medical volume. We continue to see good growth in both areas.
New memberships are coming in especially for BetterHelp as we continue to see growth. in terms of our overall healthcare, these continue to be strong trends in terms of consumer engagement. This — it’s not right now because of our Primary360, which is still small this year. But you rightly pointed out that we’re seeing very good results in terms of new sales as we look at 23 for our Primary360.
Primary360 has several different, I would say, access vehicles for different plans. If you think about some of the exchange-based Virtual First health plan designs, Primary360 is the default virtual primary care for those plans. In other areas, as you’ve probably seen that we’ve just announced, or Emblem and ConnectiCare have just announced, Primary360 is now available to all individuals and small group members on their fully insured plans in ConnectiCare as of July 1st of this year. This is an option for the consumer to choose as their primary care provider.
Not necessarily in the form of a virtual first plan, but just like you would choose any other primary care provider. When we talk about Priority Health, we’re combining our Primary360 along with our Chronic Care programs into a Virtual First Plan, which is a fully insured plan that employers can choose when they’re making plan decisions for ’23. So there are different access vehicles depending on the plan design and depending on the health plans, the virtual care strategy. But what we’re seeing are really remarkable results in terms of improving access to care, as I mentioned in my prepared remarks, two-thirds of people who engage with Primary360 haven’t seen a doctor in at least two years.
And so these are really a distant franchise from the health care system. We find that these people have had a tremendous impact in terms of their overall care because we end up providing them with many additional services, including mental health solutions and other chronic care solutions.
Our next question is Stan Berenshteyn from Wells Fargo. Your line is open. Please continue.
Stan Berenshteyn — Wells Fargo Securities — Analyst
hello Thank you for taking my questions. I guess sticking with BetterHelp, do you still expect BetterHelp’s EBITDA margin to continue to grow to the company-wide margins for this year? And then I may have missed this, but can you comment on what caused the sequential decline in visiting paying members in the quarter? thank you
Mala Murthy — Chief Financial Officer
yes So the answer to your first question is yes, we still expect BetterHelp’s margins to increase to the company’s overall margins this year. And as we talked about a few minutes ago, we’re very thoughtful about balancing revenue growth and margins. We’re talking about 40% margin growth and balancing that with our margins.
So, yes, it is accretive. And in the case of the wardrobe, the answer to your second question. There has been a change in the reporting we have received regarding members on the VFO page. And so basically we’re just tweaking it.
Our next question is Steven Valiquette from Barclays. Your line is open.
Tiffany Yuan — Barclays Capital — Analyst
hi This is Tiffany for Steve. For Chronic Care sales type only. Given that you mentioned that you’re seeing early signs of progress in closing deals and that we’re still pretty early in the selling season.
Are you making a new or a change in your sales approach? I understand that part of it can be macro oriented, but you can add any color you want there.
Jason Gorevic — Chief Executive Officer
The answer is yes. We are constantly refining our approach, especially as we increasingly focus on selling whole-person care products where we combine several of our chronic care solutions. And some of the data I pointed out is relatively new data. This allows us to demonstrate greater success and provide our customers with proof points regarding the benefit of purchasing a service package.
So, for example, when mental health services are included in Chronic Care, members see an average additional 0.5 percent reduction in A1C, nearly a 10-mm drop in systolic blood pressure, and about 2 percent additional weight loss. And so they are relatively new. We haven’t combined these services for a long time. And so we’re really focused on results.
And frankly, to step up and put our money where we want to make sure the programs get results. And I guess I just want to say this — what we’re seeing in terms of the slowness in the process turning into bookings is affecting our revenue for the year, but we haven’t seen it go beyond — well, we’re not going to get a decision at all this year and will therefore affect ’23.
Our next question comes from David Larsen of BTIG. Your line is open.
hello Can you talk briefly about the competitive dynamics in the market in general? Like Jason, when you think about the platform you have now, are there certain assets or products or certain gaps that you want to fill? Like the Accolade, for example, it clearly has a useful navigation solution. Other platforms have something called Advocacy, where there’s a kind of medical assistance where you have a health coach and they can kind of show you which doctors to go to if you need it. For other platforms, they actually carry some risk based on PMPM.
When you think about your platform, are there any holes you might see? thank you
Jason Gorevic — Chief Executive Officer
Of course, David. We actually do all the things you just mentioned. We are increasingly entering into value agreements with our customers. In some cases it’s about clinical outcomes, in others it’s about financial cost savings and compromising a portion of our fees against those savings and benefit sharing.
As you know, we also have a care team model that includes coaches, and a big part of our Primary360 program is making sure we can get you care in your home or refer you to the right doctor, the first time in the event. that you must be seen in person. I think the introduction and recently we announced the expansion of home lab testing where we can send someone to the home to do a phlebotomy or take a urine sample — it’s a great partnership with Scarlet, which is owned by BioReference. We also announced home delivery of medicines in cooperation with Capsule. And so I really see us — our Primary360 combined with our suite of chronic care and mental health solutions and of course using our professional healthcare services really differentiate us in the market as the only complete — really complete credit answer for the consumer.
Of course, that doesn’t mean we’re done. We are always striving to expand the scope of our offer. And so over the last year, we’ve developed things like a CHF-focused program, a CKD-focused program, and you’ll see us continue to expand the scope of our offerings.
Mala Murthy — Chief Financial Officer
Before we move on to the next question, George, if I hope you’re still in the relationship, I’d just like to answer your question. So the dynamic for Q4, as you mentioned, is really around BetterHelp advertising. We’re looking to pull back on ad spend in the fourth quarter, we’ve talked about the pricing dynamics of the holiday season. This is something we usually do every year.
So this is not a new dynamic. So that’s the reason for the margin advance as it is in the fourth quarter. At this point, I also wanted to reiterate from a revenue perspective that we are seeing some modest upward pressure on our return on ad spend at BetterHelp. And so — but it could — as we look forward to the next couple of months, which Jason talked about a few minutes ago, from a revenue perspective, that dynamic could change and it could change to a positive or it could change to a negative.
We will have to go through the year and see how consumer dynamics play out and whether consumer sentiment improves or continues to be more in favor of a belt-tightening loan.
Call participants:
Patrick Feeley — Vice President and Investor Relations On the same subject : Kelsey Price is one of many artists featured at Y-Bridge Arts Festival.
Jason Gorevic — Chief Executive Officer
Mala Murthy — Chief Financial Officer
Ryan Daniels – William Blair – Analyst
Lisa Gill – J.P. Morgan – Analyst
Sandy Draper — Guggenheim Securities — Analyst
Richard Close – Canaccord Genuity – Analyst
Stephanie Davis — SVB Leerink — Analyst
Sean Dodge — RBC Capital Markets — Analyst
Charles Rhyee — Cowen and Company — Analyst
Daniel Grosslight — Citi — Analyst
George Hill — Deutsche Bank — Analyst
Jessica Tassan – Piper Sandler – Analyst
A.J. Rice — Credit Suisse — Analyst
Stan Berenshteyn — Wells Fargo Securities — Analyst
Tiffany Yuan — Barclays Capital — Analyst
This article is a transcript of that conference call for The Motley Fool. While we strive to do our foolproof best, this transcript may contain errors, omissions, or inaccuracies. As with all of our articles, The Motley Fool assumes no responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for further details, including our mandatory capitalized disclaimers. The Motley Fool has positions in and recommends Teladoc Health. The Motley Fool has a disclosure policy.
This article is a transcript of that conference call for The Motley Fool. While we strive to do our foolproof best, this transcript may contain errors, omissions, or inaccuracies. As with all of our articles, The Motley Fool assumes no responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Please see our Terms and Conditions for further details, including our mandatory capitalized disclaimers.
The Motley Fool has positions and recommends Teladoc Health. The Motley Fool has a disclosure policy.
